No. 1 Trading Rule: Invest What You Can Lose

Growing up, my family did not have a lot of money. My dad made an honest living but brought home a meagre wage. We did not have nice fancy toys. There were days when my parents would eat canned preserved vegetables with plain porridge just to let us (their children) have better food or to have money to buy school supplies and I’m forever grateful to my parents for that. Dad, you will always be my hero.

Although my parents were not saavy investors, they taught me the importance of studying hard and the virtue of frugality. When I graduated, I wanted to find ways to make my money work harder so I started venturing into investment. Investment was not easy and I lost money on unit trusts and investment-linked insurance.

After so many years, the number 1 trading rule I have learnt and would like to pass on is to only invest money that one is prepared to lose. Never risk your rainy day fund (at least six months of your living expenses) or money needed for a major purchase (eg wedding or housing) or you will end up with sleepless nights. If it is money you can afford to lose and you invest in stocks with sound fundamentals eg DBS and SGX, even if the stocks drop due to unforeseen circumstances (eg Mar 2020 due to COVID-19), you have holding power and chances are good that the stocks will recover given enough time. Time in the market beats timing the market. It is an added bonus if the stocks pay dividends which can serve as a form of passive income.

DBS $DBS Group Holdings (D05.SG)$